NHK SPRING (5991) FY2027 Q1 Earnings Report

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Executive Summary

Revenue increased, while Operating Income, Ordinary Income, and Net Income all posted substantial gains, resulting in improved profitability. Revenue was ¥2161.6B (+8.1% YoY), Operating Income was ¥143.6B (+30.0%), Ordinary Income was ¥206.4B (+71.7%), and Net Income was ¥161.5B (+73.9%). In addition to improvements in the core business, the main drivers of profit growth were the boost from non-operating income, including foreign exchange gains and dividend income. A notable feature was that the growth rate of Ordinary Income significantly exceeded that of Operating Income.

Factors Affecting Business Performance

【Revenue】Revenue was ¥2161.6B, representing an +8.1% YoY increase. By segment, Disk Drive Suspension (DDS) grew substantially by +24.0%, while Industrial Equipment and Others increased by +18.4% and Precision Components and Materials rose by +10.0%, making them key growth drivers. By contrast, Seats increased by +1.1% and Suspension Springs by only +3.7%, indicating clear differences in growth momentum among the businesses.

【Profit and Loss】Operating Income was ¥143.6B (+30.0% YoY), and the Operating Margin improved to 6.6% from 5.5% in the previous year. DDS generated Operating Income of ¥90.6B (+43.1%, margin of 24.1%), accounting for more than half of company-wide profit, while Suspension Springs fell from a profit of ¥2.7B in the previous year to a loss of ¥5.1B. Ordinary Income was ¥206.4B (+71.7%), boosted by ¥68.6B in non-operating income, including foreign exchange gains of ¥30.0B and dividend income of ¥24.9B, substantially exceeding the growth rate of Operating Income. Net Income was ¥161.5B (+73.9%), resulting in higher revenue and higher profit.

Segment Analysis

DDS led profit growth as the core business, with revenue of ¥376.4B (+24.0%) and Operating Income of ¥90.6B (+43.1%, margin of 24.1%), accounting for 63.1% of company-wide Operating Income of ¥143.6B. Industrial Equipment and Others recorded substantial profit growth, with revenue of ¥374.3B (+18.4%) and Operating Income of ¥27.1B (+66.7%). Precision Components and Materials steadily expanded, with revenue of ¥287.9B (+10.0%) and Operating Income of ¥13.0B (+26.2%). Meanwhile, Suspension Springs fell into an Operating Loss of ¥5.1B, compared with Operating Income of ¥5.1B in the previous year, despite revenue of ¥438.6B (+3.7%), indicating challenges in cost absorption and price pass-through. Seats remained almost flat, with revenue of ¥745.0B (+1.1%) and Operating Income of ¥17.9B (+0.4%).

Key Financial Indicators

【Profitability】The Operating Margin improved to 6.6% from 5.5% in the previous year, but the Gross Margin remained at 14.9%, indicating a profitability structure that is susceptible to cost fluctuations. The Net Profit Margin was 7.3% (based on Net Income attributable to owners of the parent), a favorable level.【Cash Flow Quality】Accounts receivable were ¥1520.1B and inventories were ¥302.5B, indicating a large scale of working capital associated with operating activities.【Investment Efficiency】ROE was 3.4% (simple calculation), equivalent to approximately 13.9% if Q1 profit were annualized; however, attention should be paid to the repeatability of non-recurring factors such as foreign exchange gains.【Financial Soundness】The Equity Ratio was high at 62.0%, and liquidity was ample, with current assets of ¥4214.5B compared with current liabilities of ¥2049.7B. Interest-bearing debt was limited to ¥442.7B, while cash and deposits of ¥1258.9B exceeded this amount, indicating a conservative financial structure.

Cash Flow Analysis

Although cash flow statement figures were not included within the disclosed information, balance sheet data provide some insight into the movement of funds. Cash and deposits were ¥1258.9B, up from ¥1084.0B in the previous year, indicating increased on-hand liquidity. Accounts receivable were ¥1520.1B, while inventories were ¥302.5B, consisting of raw materials of ¥354.5B, work in process of ¥187.0B, and finished goods of ¥302.5B, representing a scale that suggests an accumulation of working capital accompanying revenue growth. Accounts payable were ¥973.6B, remaining broadly in line with the previous year, with no major change in trade payables. Interest-bearing debt was limited to ¥442.7B, and since cash and deposits exceeded this amount, the Company retained financial flexibility in funding and liquidity management.

Quality of Earnings

The +71.7% growth rate in Ordinary Income substantially exceeded the +30.0% growth rate in Operating Income, with the difference attributable to an expansion in non-operating income. Non-operating income was ¥68.6B, comprising foreign exchange gains of ¥30.0B, dividend income of ¥24.9B, and other income of ¥6.3B, all of which were factors independent of core operating activities. Foreign exchange gains were equivalent to 20.9% of Operating Income, and the degree of reliance on this non-recurring income must be considered when assessing the quality of Ordinary Income. Comprehensive Income was ¥231.5B (¥226.0B attributable to owners of the parent), exceeding Net Income of ¥161.5B, as other comprehensive income items such as valuation difference on securities of ¥52.8B and foreign currency translation adjustments of ¥17.2B were added. The divergence between Net Income and Comprehensive Income was significantly affected by valuation gains arising from market conditions, including share prices and foreign exchange rates, and should be considered separately from recurring earnings power.

Earnings Forecast and Guidance

The full-year Company forecasts are Revenue of ¥8600.0B (+5.3% YoY), Operating Income of ¥590.0B (+28.9%), and Ordinary Income of ¥640.0B (+22.6%). As of Q1, no revisions had been made to the earnings forecast or dividend forecast. While progress rates were at standard levels for Revenue at 25.1% and Operating Income at 24.3%, the progress rate for Ordinary Income was relatively high at 32.3%, due to the contribution of non-operating income, including foreign exchange gains. In assessing the quality of full-year achievement, it is necessary to distinguish between the standard progress of Operating Income and the progress of Ordinary Income, which has been boosted by non-recurring factors.

Shareholder Returns

The full-year dividend forecast is ¥69.00 per share, with no revision to the dividend forecast as of Q1. Based on forecast EPS of ¥222.12, the Payout Ratio is 31.1%, a relatively restrained level compared with earnings. Shares issued totaled 231,066 thousand shares, including 28,471 thousand treasury shares. The implementation status of share repurchases cannot be confirmed from this material.

Risk Factors

1. Foreign Exchange Risk: Foreign exchange gains of ¥30.0B included in non-operating income were equivalent to 20.9% of Operating Income. Consequently, fluctuations in Ordinary Income may be greater than changes in the core business due to movements in foreign exchange rates.

2. Risk of Profit Concentration in a Specific Segment: DDS accounted for 63.1% of company-wide Operating Income, meaning that changes in demand trends and the competitive pricing environment in this business could have a significant impact on consolidated results.

3. Deterioration in the Profitability of the Suspension Springs Business: The business recorded an Operating Loss of ¥5.1B on revenue of ¥438.6B (+3.7%), representing a deterioration from Operating Income of ¥5.1B in the previous year. Cost absorption and the status of price pass-through will be key areas of focus going forward.

Industry Benchmark (For Reference; Compiled by the Company)

Profitability and Returns

The Operating Margin is below the industry median, while the Net Profit Margin is slightly above the median, indicating a structure in which non-operating income complements profitability.

Growth and Capital Efficiency

The Revenue Growth Rate exceeds the industry median, indicating a relatively favorable position in terms of growth.

※Source: Compiled by the Company

Key Points from the Earnings Results

1. The Operating Margin improved by approximately 1.1pt from the previous year to 6.6%, but the Gross Margin remained at 14.9%, indicating relatively low resilience to cost fluctuations within the industry.

2. The high growth rates of Ordinary Income and Net Income were significantly driven by non-operating income such as foreign exchange gains and dividend income, and must be considered separately from core Operating Income growth of +30.0%.

3. While the DDS business accounted for more than 60% of company-wide Operating Income, the Suspension Springs business fell into an Operating Loss, making the imbalance in the earnings structure among segments a key area of focus going forward.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,342–¥2,481 at ±1% for the Cost of Equity, and ¥2,407–¥2,413 at ±0.1 for ω.

Notes:

• Net assets as of the quarter-end were used (there is a time-period mismatch with the full-year forecast).
• Since net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit 5-year fade) / Interest Rate Reference Month: 2026-07 / Mechanically calculated using only publicly available data; this is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings summary data. It does not recommend investment in any specific securities. The industry benchmarks are reference information compiled by the Company based on publicly disclosed earnings data. Investment decisions should be made at your own discretion and responsibility, after consulting a professional as necessary.

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AI Financial Analysis

Executive Summary

Nippon Steel Spring delivered a strong FY2027 Q1 result, with operating performance improving materially and ordinary profit benefiting further from investment-related and foreign-exchange income. Revenue increased 8.1% year on year to JPY216.2bn. Operating income rose 30.0% to JPY14.4bn, substantially outpacing sales growth. Gross profit increased to JPY32.2bn from JPY27.3bn in the prior-year quarter. The gross margin expanded by 126bp year on year to 14.9%. SG&A rose 10.0% to JPY17.8bn, modestly faster than revenue, but the gross-profit expansion was sufficient to raise the operating margin by 112bp to 6.6%. Ordinary income surged 71.7% to JPY20.6bn, while profit attributable to owners increased 75.2% to JPY15.7bn. The net margin expanded by 279bp to 7.3%. Non-operating income of JPY6.9bn was significant, equivalent to 47.8% of operating income, led by JPY3.0bn of foreign-exchange gains and JPY2.5bn of dividend income. Therefore, the sharp ordinary-income and net-income growth was not entirely attributable to the operating business. DDS was the core business by operating-income contribution, producing JPY9.1bn of segment profit, or 63.1% of consolidated operating income. DDS also showed the strongest improvement, with segment profit up 43.1% year on year on 24.0% revenue growth. The Suspension Springs segment moved to a JPY0.5bn operating loss despite 3.8% sales growth, creating a notable area for management attention. The balance sheet remains conservatively structured, with a 205.6% current ratio, 4.73x cash coverage of short-term loans, and debt/capital of 8.6%. The reported annualized ROE of 13.4% is solid and is supported principally by a 7.3% net margin rather than aggressive balance-sheet leverage. Q1 sales progress was broadly in line with the full-year plan, while profit progress was ahead of the standard seasonal run rate. The full-year forecast remains unrevised, implying that management retains a prudent view on subsequent-quarter conditions. Key determinants of the outlook are the sustainability of DDS profitability, recovery in Suspension Springs, foreign-exchange movements, and receivables collection discipline.

Profitability Analysis

Reported annualized ROE is 13.4%, decomposed into a 7.3% net profit margin, 1.145x annualized asset turnover, and 1.61x financial leverage. The profit margin is the principal contributor to the return profile, while financial leverage is moderate rather than aggressive. Revenue growth of 8.1% translated into 30.0% operating-income growth, demonstrating positive operating leverage. Gross margin improved to 14.9% from 13.6%, while operating margin rose to 6.6% from 5.5%. This indicates that pricing, product mix, manufacturing productivity, or cost absorption improved sufficiently to offset SG&A growth of 10.0%. However, SG&A growth exceeded revenue growth by approximately 1.9 percentage points, requiring continued gross-margin improvement to preserve operating leverage. The gross margin remains below the 20% reference level, consistent with a manufacturing business whose profitability remains sensitive to materials, labor, energy, utilization, and customer pricing conditions. The five-factor DuPont view shows a normal 0.762 tax burden, while the 1.438 interest burden reflects large net non-operating income rather than debt-funded earnings. Interest expense of JPY1.2bn was very small relative to EBIT, producing 118.64x interest coverage. Foreign-exchange gains of JPY3.0bn represented 20.9% of operating income, and dividend income totaled JPY2.5bn; these items materially enhanced ordinary income. Consequently, the 7.3% net margin is strong, but its Q1 level should not be treated as entirely recurring operating profitability. By segment, DDS generated a 24.1% operating margin, far above the consolidated margin and other divisions, making it the central earnings engine. Industrial Equipment and Others improved to a 8.2% segment margin, Precision Components reached 4.6%, and Seats produced a 2.4% margin. Suspension Springs deteriorated from a 0.6% margin to a negative 1.2% margin, indicating segment-specific cost, mix, volume, or pricing pressure.

Growth Assessment

Revenue growth was broad-based across the portfolio, with DDS increasing 24.0% year on year to JPY37.6bn, Industrial Equipment and Others increasing 16.2% to JPY33.0bn, Precision Components increasing 8.8% to JPY28.1bn, Suspension Springs increasing 3.8% to JPY43.4bn, and Seats increasing 0.6% to JPY74.1bn. DDS accounted for the largest absolute revenue increase, adding JPY7.3bn, and also supplied the largest profit increase, adding JPY2.7bn. Industrial Equipment and Others added JPY0.8bn of operating profit, while Precision Components added JPY0.3bn. Seats remained profitable but largely flat in both sales and segment profit. The revenue base is diversified, but earnings concentration in DDS has increased because its segment profit contribution substantially exceeds that of the other segments. Q1 revenue represents 25.1% of the JPY860.0bn full-year forecast, essentially in line with the 25% standard Q1 progress rate. Operating income represents 24.3% of the JPY59.0bn full-year forecast, also broadly consistent with the standard run rate. Ordinary income progress is 32.3% of the JPY64.0bn forecast, and owner-attributable profit progress is 34.9% of the JPY45.0bn forecast. The stronger below-operating-line progress reflects Q1 non-operating income, particularly foreign-exchange gains and dividend income, rather than a similarly outsized operating-profit run rate. Full-year forecast growth assumptions of 5.3% for revenue, 28.9% for operating income, and 22.6% for ordinary income indicate management expects margin recovery to remain the major earnings driver. Maintaining the full-year forecast despite strong Q1 ordinary-profit progress suggests that subsequent quarters may contain less favorable FX, investment income, mix, or cost conditions.

Financial Health

Liquidity is strong, with current assets of JPY421.5bn against current liabilities of JPY205.0bn, producing a current ratio of 205.6%. The quick ratio of 190.9% indicates that liquidity is supported primarily by cash and receivables rather than inventories. Cash and deposits totaled JPY125.9bn, equal to 16.7% of total assets. Working capital was JPY216.5bn. Interest-bearing debt was JPY44.3bn, while reported debt/capital was a conservative 8.6% and reported debt-to-equity was 0.61x. Interest coverage of 118.64x provides substantial protection against financing-cost pressure. The short-term debt ratio was 60.1%, above the 40% alert threshold, meaning the debt maturity profile is weighted toward near-term refinancing. This refinancing-risk signal is mitigated materially by cash/short-term-debt coverage of 4.73x and by the strong current and quick ratios. Short-term loans were JPY26.6bn and the current portion of bonds was JPY10.0bn, against JPY125.9bn of cash and deposits. Long-term loans declined 21.1% year on year to JPY17.7bn, improving longer-term leverage. Total equity increased to JPY468.5bn, and the equity ratio improved to 60.0% from 59.3%. Net defined-benefit liabilities of JPY26.8bn and lease obligations of JPY2.2bn are additional fixed obligations but are manageable relative to the equity base and liquidity.

Notable B/S Changes

Cash and deposits: +JPY17.5bn (+16.1%) year on year to JPY125.9bn - reinforces already strong near-term liquidity and provides a material buffer against short-term refinancing needs. Investment securities: +JPY8.5bn (+11.9%) year on year to JPY79.6bn - the absolute increase exceeds JPY5.0bn and increases exposure of equity and comprehensive income to market-value movements. Accounts receivable: -JPY6.5bn (-4.1%) year on year to JPY152.0bn - an absolute reduction supports working-capital discipline, although annualized DSO remains elevated at 64 days. Long-term loans: -JPY4.7bn (-21.1%) year on year to JPY17.7bn - deleveraging improves the long-term capital structure. Accumulated other comprehensive income: +JPY6.9bn (+6.8%) year on year to JPY107.5bn - mainly reflects stronger valuation and translation reserves, increasing equity but also highlighting sensitivity to market and currency movements. Valuation difference on securities: +JPY5.3bn (+15.6%) year on year to JPY39.1bn - unrealized securities gains supported comprehensive income and equity during the quarter.

Cash Flow Quality

Dividend Sustainability

The full-year dividend forecast is JPY69 per share, with no revision announced. Based on forecast EPS of JPY222.12, the implied dividend payout ratio is 31.1%. This is comfortably below the 60% sustainability reference level and leaves substantial earnings retention capacity. Forecast owner-attributable profit of JPY45.0bn provides a broad accounting earnings base for the planned dividend. Retained earnings were JPY349.7bn at the end of Q1, supporting financial flexibility. The large treasury-share balance of 28.5 million shares should be monitored as a capital-allocation variable, although no buyback amount is specified.

Risk Assessment

Business risks include DDS is the core earnings driver, contributing JPY9.1bn or 63.1% of consolidated operating income; a slowdown in this segment would have a disproportionate effect on group earnings., Suspension Springs recorded a JPY0.5bn operating loss versus a JPY0.3bn profit a year earlier despite revenue growth, indicating risk from automotive production volumes, customer pricing, raw-material costs, utilization, or product mix., The 14.9% gross margin remains below the 20% reference level, leaving profitability exposed to steel and other material costs, energy prices, wage inflation, supply-chain disruption, and customer pass-through timing., Receivable days are 64 days on an annualized basis, above the 60-day warning threshold; this elevates collection-cycle and customer-credit exposure in a manufacturing supply chain., Foreign-exchange gains of JPY3.0bn equaled 20.9% of operating income, exceeding the 20% warning threshold; currency movements can materially affect reported ordinary income..

Financial risks include The 60.1% short-term debt ratio exceeds the 40% alert threshold, leaving the company reliant on access to bank and capital-market refinancing even though current liquidity is strong., Investment securities totaled JPY79.6bn, or 10.5% of assets; market-price changes can affect comprehensive income and equity through valuation differences., Ordinary income is materially exposed to non-operating items: total non-operating income of JPY6.9bn included FX gains, dividend income, and interest income, reducing predictability relative to operating income..

Key concerns include Highest priority: restoration of profitability in Suspension Springs, because the segment shifted into loss while it remains a meaningful JPY43.4bn quarterly revenue business., High priority: whether DDS can sustain its 24.1% segment margin and JPY9.1bn quarterly operating profit as the group’s dominant earnings source., High priority: the persistence of Q1 FX gains and dividend income, which explain much of the gap between 30.0% operating-income growth and 71.7% ordinary-income growth., Medium priority: reduction of annualized DSO from 64 days through collection discipline and customer-credit management., Medium priority: refinancing management for the short-term weighted debt structure, notwithstanding cash coverage of 4.73x..

Investment Implications

Key takeaways include Q1 operating income grew 30.0% year on year, supported by 126bp gross-margin expansion and strong DDS performance., DDS is the core business, generating JPY9.1bn of operating profit and a 24.1% margin., Reported annualized ROE of 13.4% is solid, with a strong 7.3% net margin and moderate 1.61x financial leverage., Balance-sheet capacity is strong: current ratio is 205.6%, debt/capital is 8.6%, and interest coverage is 118.64x., Ordinary and net profit growth benefited materially from JPY3.0bn of FX gains and JPY2.5bn of dividend income, so operating-income trends are the cleaner measure of recurring progress., The implied 31.1% forecast dividend payout ratio indicates substantial headroom within forecast earnings..

Metrics to watch include DDS revenue growth and operating margin, Suspension Springs operating-loss recovery, Consolidated gross margin and SG&A growth relative to sales, Foreign-exchange gains or losses relative to operating income, Annualized receivable days and trade receivables, Short-term debt ratio and cash coverage of near-term obligations, Progress against the JPY860.0bn revenue and JPY59.0bn operating-income full-year forecasts.

Regarding relative positioning, Nippon Steel Spring combines a diversified manufacturing revenue base with a particularly profitable DDS franchise, strong liquidity, low debt/capital, and an annualized ROE in the good 10-15% range. Its relative earnings profile is strengthened by positive operating leverage but is moderated by below-reference gross margin, a loss-making Suspension Springs division, elevated receivable days, and material sensitivity of ordinary income to FX and investment-related income.